We Haven't Always Done It This Way

"This is the time to get rid of the billable hour," Evan R. Chesler, presiding partner at Cravath, Swaine & Moore in New York, told the New York Times in January. Today when I hear law-yers talk about alternative ways to bill and deliver legal counsel, my reaction is, "What took you so long?"

During the past 35 years, I've had the good fortune of being involved in law from three different perspectives: as a law-firm partner, as a general counsel, and as a corporate client. And in that time I've seen both the rise of the billable hour as a measure of value, and signs of its demise.

When I entered private practice in 1973, my firm?like most others?operated on a 1-to-1 ratio: one associate per partner. Associates were on the front line from the outset. The firm hired only lawyers it expected would make partner, and those of us who did shared equally with the top partners within a reasonably short number of years.

Bill McKenna, my mentor at what originally was McKenna & Fitting, had associates do the first drafts of client bills?as a way of involving them in the firm's business, to see the economic impact of what we were doing, and to help us stay focused on delivering results. The firm was one of the first to use computers, so the starting point was to look at a very rough printout of time lawyers had reported. Previously, billings were based on individual "client diaries."

Far more important than the time entries, however, was what we drafted. The first paragraph of a bill was a summary of the strategy being pursued during the billing period, so that everything was kept in perspective. Invariably, that first paragraph ended with the phrase "In connection with the foregoing" and was followed by several additional paragraphs describing the work performed in greater detail. The descriptions were presented in a logical fashion, grouping what had been done in court appearances, drafting agreements, due diligence, and the like.

Our recommendation for the amount to be billed was based on three factors: (1) what the computer showed, (2) our own assessment of how efficient we thought attorneys working on the matter had been, and (3) what the client probably thought the work was worth. We then had to defend our recommendation to the partner who billed for the matter.

During my subsequent years of law-firm practice, I witnessed several evolutions: bills based solely on the computer print-out; high associate-to-partner ratios; high turnover, and the significant detachment of lawyers from both their firms and clients.

In 1993 I became general counsel at Stanford University and Stanford Medical Center. Suddenly I was on the receiving end of the law-firm system?and that brought surprises. Even though I had sent out several thousand bills during my own days in private practice, I wasn't prepared for the stream-of-consciousness itemization that accompanied the billing printout, the large numbers of unknown timekeepers inflating each bill, or the fact that neither strategy nor desired outcome seemed to have been the focus of what those lawyers were doing. Within a year, my office turned the whole system inside out. Three law firms (eventually five) were given entire portfolios of work at fixed or budgeted prices. As our university president put it, "You've simply reinvented the retainer, although you expect results in return."

Outside attorneys were provided university telephone numbers and on-campus offices; they attended our weekly staff meetings and annual retreat; and they functioned as if they were in-house coun-sel. They drew on their firms' expertise to deliver results rather than just pile up hours. And because the portfolios included both counseling and litigation for a given substantive area of law, their firms got very good at keeping us out of trouble. Within two years our legal costs were down approximately 25 percent, while the firms maintained strong profitability. A few years later our litigation caseload was about half what it had been for the prior decade.

This leads me to my third perspective, as the client. Shortly after I joined Stan-ford, I also became an outside director of a publicly traded company. I'll never forget my first board meetings: We directors often were briefed by perfectly competent outside counsel, yet I realized that my fellow direc-tors and I were thinking the same thing: This is all quite irrelevant.

At the end of one law-firm presentation, one director finally said, "Look, I know it makes you feel good to tell us about all of the issues you researched and to do all of your hand-wringing. But now why don't you tell us what you recommend?"

And that said it all. The outside lawyers thought they were doing their jobs by issue-spotting and billing time. They seemed to have forgotten that the real goal is delivering practical and effective advice.

-MR

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